David's Utility Function If David's Current Wealth Is $61,000

question 178

Multiple Choice

David's Utility Function If David's current wealth is $61,000, then

• A) his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is risk averse.
• B) his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is not risk averse.
• C) his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is risk averse.
• D) his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is not risk averse.

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Definitions:

Arbitrage

The simultaneous buying and selling of assets in different markets to exploit price differences for profit.

Elasticity of Demand

A gauge for the responsiveness of how much a product is wanted relative to fluctuations in its price.

Inelastic Demand

A market situation where the demand for a product does not significantly change with a change in price.

Elastic Demand

A market condition where the demand for a product or service significantly changes in response to price changes.